WHAT TO DO NOW: The market continues to be unable to get out of its own way, and this is despite some historic oversold readings. A sharp bounce is certainly possible, but we’re continuing to hold plenty of cash and take action when necessary. Today, we’re going to sell one-third of our position in Dexcom (DXCM) and another 20% of what we have remaining in Teladoc (TDOC), which will give us around 62% in cash. Details below.
After a sharp one-day bounce, the sellers are at it again today, with the indexes quickly diving back to Monday’s lows, bringing with them most every stock in the market. At 2:15 p.m., the major indexes were down in the 4.7% to 5.3% range.
Monday’s plunge did bring a few historic extremes, including a combined 3,000 stocks hitting new lows on both the NYSE and Nasdaq combined, the largest figure since 2008. (As we write this, today that figure is “only” 1,500 or so.) Such readings certainly tell us a bounce is possible, if not likely, as the rubber band is stretched.
That said, such measures are secondary in nature, and while it’s good to know the odds, the fact is this three-week decline has been something of a rule breaker in terms of not following what “should” occur based on history, which is noteworthy in and of itself.
Long story short, we’re following the system—with the trend down for the major indexes and a vast majority of stocks, we’re holding plenty of cash, doing little new buying and continuing to prune when needed.
We came into today with around 55% in cash, but we’re going to boost that further tonight by trimming two of our winners—first, we’re going to sell one-third of Dexcom (DXCM), which has finally come under the gun this week; and second, we’re going to trim 20% of what we have left of Teladoc (TDOC), as we have a good-sized position and want to book a little more profit.
Those two moves will raise our cash position to the 62% range. As we’ve written recently, we’re not necessarily craving more cash, but we’re also not hesitant to dump shares (partial or in full) should the selling continue.
Down the road, there will be plenty of great new leading stocks to latch onto when this panic ends and the world gets the upper hand on the virus. But whether that time comes in a few weeks or a few months is anyone’s guess. Right now, it’s best to remain mostly defensive and patiently wait for the buyers to show up.
As always, we’ll be on the horn with any further changes if need be. Don’t hesitate to email (mike@cabotwealth.com) with any questions; we’re here to help in these crazy times. Your next scheduled message is tomorrow’s (March 12) issue, but of course we’ll send special bulletins as needed.